When it comes to bookkeeping, there are no shortcuts. Even the little details of your finances need to be tracked, recorded, and documented to ensure the success of your business. Good bookkeeping keeps you on track and prepares you for auditing or filing income taxes. Whether you utilize bookkeeping software or do everything the old-fashioned way, getting all the numbers to add up correctly is essential. A few common bookkeeping basics often get neglected, despite their immense value. Here are three business bookkeeping basics you shouldn’t overlook!
1. Invoicing
If you are a service-based business or allow customers to charge goods to an account, invoicing is the primary way you collect your income. Utilizing best practices when it comes to invoicing can have significant benefits for the profitability of your business. These best practices start with good bookkeeping. Invoicing should be done at regular intervals or with the completion of a project or service. The invoice should be clear and detailed and include all the relevant information about your client.
Creating an itemized list of goods or services rendered provides transparency for your customer. This list should include the cost and description of each item. All invoices should consist of an invoice number to allow you to track and follow up on payments. Your invoices should also include information about payment terms and methods. The more precise information you give your client, the less opportunity there is for confusion and missed or late payments.
Keep a detailed record of when you send the invoice, when the invoice is due, when the invoice is paid, and any unpaid invoices. You should retain copies of every invoice. It can be helpful to send a reminder to your customer a week before an invoice is due to get ahead of any potential issues and avoid late payments. There are many software programs that can track this and automate communications with customers.
2. Billing
Billing, or accounts payable, is the money going out of your business to pay for services, goods, and other things that keep your business operational. When you receive a new bill from a vendor, you need to keep a record of your internal processing of this bill. Keeping track of what you currently owe to vendors and what you have already paid can keep your finances organized. Utilizing bookkeeping software or a calendar to track when each payment is due and when the money will be leaving your account can prevent you from paying late, overdrawing your account, or missing a payment altogether. Keep a record of every bill paid to prove payment if necessary.
3. Reporting
This is a big one many small businesses neglect. Reporting can provide a window into the financial health of your business and highlight areas of strength or weakness. If you only have the capacity to track three reports, we recommend an income statement, a balance sheet report, and a budget vs. actual report.
- Income Statement: This is a profit/loss statement. This report will provide the big picture view of your business finances and tell you if you are operating at a profit or a loss. By measuring expenses and income over a set period, you can see where your budget may need to be tweaked.
- Balance Sheet Report: This report helps you understand your assets and liabilities. Essentially, this report will show what kind of equity you have in your business by detailing what your business currently owns and what it owes. If you ever need to get a loan for your small business, this is the report a lender or bank would want to see.
- Budget v. Actual Report: This report will compare your budget to how much you are actually spending on expenses during a set time. This is a great way to assess costs and determine if your budget is realistic. A budget vs. actual report is a great way to forecast your business’s financial health and identify areas of your finances you need to address.
Bookkeeping basics are essential, but these practices can also be time-consuming and complex. Working with Halter CPA can make the intimidating bookkeeping task easy so you can focus on running your business.